TLDR
- KNPA drafts rules for crypto seizure, including dark coin handling
- Software wallets required for privacy coins due to tracing limits
- Police seek private custody firm after three failed bids in 2025
- Seized crypto value reaches about 54.5 billion won in five years
South Korea’s police are tightening oversight of seized cryptocurrencies after custody lapses raised concerns about asset safety. A new draft regulation outlines clear rules for handling digital assets, including privacy coins, and introduces structured wallet management practices to reduce risks and improve consistency during investigations involving virtual assets.
New Rules Target Gaps in Crypto Seizure Process
South Korea’s National Police Agency has drafted new rules for handling seized cryptocurrencies. The move follows cases where digital assets were lost or mishandled in custody. The draft sets compliance steps for each stage of seizure and storage. A police official said, “In the past, seized assets were stored in warehouses. Now we must manage wallet addresses and private keys.”
The statement reflects a shift in how law enforcement handles financial evidence. The rules include guidance for both standard cryptocurrencies and privacy-focused coins. These privacy coins are often harder to trace due to hidden transaction data.
As a result, they require different storage methods than common assets like Bitcoin. The agency aims to reduce confusion among field officers. Until now, there were no formal guidelines for managing such assets. Officers often had to rely on unofficial methods during investigations.
Focus on Dark Coins and Software Wallet Use
Privacy-focused cryptocurrencies, often called dark coins, are a key part of the new rules. These assets hide sender, receiver, and transaction amounts. This feature makes them harder to track and more complex to store. Unlike standard cryptocurrencies, dark coins may not work with hardware wallets.
These wallets are usually physical devices such as USB drives. Instead, dark coins require software wallets installed on computers or servers. In these systems, private keys are stored as digital files or strings. This creates added security risks if the data is exposed.
The new draft includes a “software wallet management plan” to address these risks. Authorities have linked dark coins to criminal activity. Past cases involved illegal content distribution and money laundering. Reports also note their use by sanctioned entities seeking to move funds without detection.
Custody Plans and Budget Constraints Remain Challenges
The police plan to select a private custody firm to manage seized digital assets. However, earlier attempts to find a provider were unsuccessful. Three bidding rounds in 2025 did not produce a suitable partner. Many firms were considered too small or lacked stability. Budget limits also played a role in the failed bids. The allocated budget was about 83 million won, which some viewed as too low.
Experts suggest a centralized custody system to reduce risks. Professor Hwang Sukjin said, “If each police station manages wallets individually, it can lead to gaps.” He added that leaked mnemonic codes could expose private keys. Another expert, Kim Hyungjoong, noted that virtual assets carry high theft risks. He said management should be handled by professional firms or authorized exchanges.
Data shows that seized cryptocurrencies over five years are worth about 54.5 billion won. This includes around 50.7 billion won in Bitcoin and 1.8 billion won in Ether. The total may be higher due to undisclosed wallets. The draft rules reflect growing pressure to improve digital asset management. As more crimes involve cryptocurrencies, authorities are updating their approach to evidence handling.
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